The financial industry provides a multitude of investment options for investors to manage and grow their financial resources. The different types and vehicles of investment continues to increase. With all of the different options available, individual investors often turn to managed plans or otherwise seek professional investment advice to help simplify investment decisions. In the workplace, companies and employers often provide ways to allow employees to invest a portion of their income, such as through a 401 (k) program, which is an investment vehicle facilitated by the tax code.
Investments range from conservative, essentially no-risk interest accounts to highly-volatile and risky financial endeavors. When availing such investment options, companies typically aspire to provide multiple investment choices for both those who welcome risk where potential return is great, as well as for the risk-wary participants who have an aversion to a high risk of financial loss. For this reason, company sponsored investment plans typically provide options for a range of plan participants who fall within this range.
One type of investment option that is relatively conservative is the guaranteed investment contract or “GIC.” Generally, a GIC is a debt instrument issued by an insurance company, often in a large denomination, and often bought for retirement plans. GICs are promises by insurance companies to repay principal plus a fixed interest rate by a specified date. The company that writes the contract, generally in insurance company or bank, promises the investor a certain interest rate over the life of the contract, which varies.
In recent years, the GIC market has been transformed from a single provider/single product environment to the greatly expanded multiproduct/provider stable value industry. The industry now offers a spectrum of new products and services provided by a variety of different issuers, including insurance companies, banks and fixed income money managers. In addition, third party intermediaries and professional money managers now have significant influence over investment selection and strategy. These third party intermediaries have substantially increased their purchase activity and dramatically improved the level of buyers sophistication.
Generally, a stable value fund is a type of low-risk investment fund that has proved to provide an appreciable return considering the virtually nonexistent risk of principal loss. While stable value funds used to invest only in GICs, now they also invest in government bonds and high-quality asset-backed securities and corporate bonds that offer the investor the ability to withdraw or transfer funds without market value risk (risk of principal loss as interest rates rise) or other penalty for premature withdrawal. An insurance policy or “wrapper” provides the stability, which is purchased from a bank or insurer, protects investor's principal, and locks in a return. The issuer of the investment contracts thus guarantees principal plus accumulated interest and an interest rate for a specified period of time.
Further diversification is achieved when contracts issued by various banks and insurers are pooled into larger funds. A stable value fund pools money of many investors, and uses it to buy a number of contracts from insurance companies or banks, i.e., the issuers. Under the terms of each contract, the issuer guarantees a regular rate of return for the length of the contract, and takes on two types of risk, namely investment risk and withdrawal risk. Investment risk is where the issuer invests the money in a portfolio of fixed income investments, such as government bonds or mortgages. If the returns on this investment are lower than what the contract issuer is paying you, the issuer still pays you the specified amount and takes the loss. If investment returns are higher, the issuer pockets the extra profit.
Withdrawal risk is determined based on the probability of the plan running short of liquid assets and needing to access a contract for a book value payment. At any point in time during the term of the contract, the value of the underlying assets may be above or below the book value, but the issuer always pays the plan book value. As a result, an issuer could make or lose money due to plan withdrawals. Therefore, it is very important to properly price that probability which requires careful and thorough analysis of the necessary underwriting data. The risk of a stable value contract can be judged by the rating held by the issuer; i.e., if it has a AAA rating, so does the contract.
As a result of this product diversity, the characteristics of stable value portfolios have also changed radically. The average portfolio today is much more complex in both structure and risk profile than its predecessor a decade ago. These complexities and high volumes of stable value transactions have caused inefficiencies in stable value portfolio management. Further, stable value managers (i.e., “buyers”) or independent buyers traditionally communicated all of the underwriting data to issuers in hardcopy paper format, such as by facsimile or regular mail. Stable value issuers (i.e., “sellers”) then had to re-enter this information into their internal system used for underwriting and pricing the contract that is being bid out.
Software has been used to assist in such transfers. TRACE software, developed by the assignee of the instant application, allowed managers to enter data at the site and transmit data electronically to the issuer in a uniform format. A stable value issuer also uses the software, but does not enter any data. Instead, the stable value manager electronically builds a file for the issuer, and transfers it to the issuer electronically. The stable value issuer retrieves the file and brings it into their software database.
While such a system provided assistance to both managers and issuers, these systems have certain limitations. For example, manual data entry at the managers site remained a time-consuming task, causing some managers to limit the frequency of updates, and other managers to avoid using the system. Further, the data was not updated frequently enough to satisfy issuers, as issuers want data updated continuously, and desire a broader market participation (i.e., more managers using such a system). The inability to automatically feed data into the database system was a significant barrier to efficacious communication between managers and issuers. Additionally, issuers who had already obtained the data could not introduce this data into their proprietary pricing or modeling systems due to incompatible data field formats.
Therefore, it would be desirable to increase the efficiency and productivity of financial transaction communications, such as the communication between plan managers and plan issuers in the stable value industry. The present invention provides an effective and secure manner of facilitating such communications, which is compatible with virtually any platform, is amenable to non-technical users, and includes features that overcome the aforementioned and other shortcomings of the prior art.